Validus Reinsurance, Ltd. v. United States

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 20, 2015 Decided May 26, 2015

No. 14-5081

VALIDUS REINSURANCE, LTD.,
APPELLEE

v.

UNITED STATES OF AMERICA,
APPELLANT

Appeal from the United States District Court
for the District of Columbia
(No. 1:13-cv-00109)

Ellen Page DelSole, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Tamara W. Ashford, Acting Assistant Attorney General, Ronald
C. Machen, Jr., U.S. Attorney, and Gilbert S. Rothenberg and
Richard Farber, Attorneys.

Joseph R. Guerra argued the cause for appellee. With him
on the brief were Erika L. Maley, R. Lee Christie, and Tracy D.
Williams.

M. Kristan Rizzolo was on the brief for amici curiae
International Underwriting Association of London, Ltd., et al. in
support of appellee.
 2

Before: ROGERS and BROWN, Circuit Judges, and
GINSBURG, Senior Circuit Judge.

Opinion for the court by Circuit Judge Rogers.

Rogers, Circuit Judge: The United States appeals the grant
of summary judgment to Validus Reinsurance, Ltd., in its suit
for the refund of excise taxes imposed under 26 U.S.C. § 4371,
which taxes certain types of “reinsurance.” Validus, a foreign
reinsurer, paid the excise tax on reinsurance policies it had
purchased from other foreign reinsurance companies. The
government contends that “the best reading of the statute”
establishes its applicability to reinsurance purchased by a
reinsurer because such policies (known as “retrocessions”) are
“a type of reinsurance,” Appellant’s Br. 24, and also that
interpretation carries out Congress’s intent “to level the playing
field” between domestic (U.S.) insurance companies subject to
U.S. income taxes and foreign insurance companies that are not
so burdened, id. at 21. Validus responds that the plain text,
considered in the context of reinsurance, and the statutory
structure make clear the excise tax does not apply to
retrocessions, and further, the presumption against
extraterritoriality resolves any doubt that the tax is inapplicable
to Validus’s purchases of reinsurance from a foreign reinsurer
(i.e., to wholly foreign retrocessions). Because both parties
offer plausible interpretations, we conclude that the text of the
statute is ambiguous with respect to its application to wholly
foreign retrocessions. The ambiguity is resolved upon applying
the presumption against extraterritoriality because there is no
clear indication by Congress that it intended the excise tax to
apply to premiums on wholly foreign retrocessions.
Accordingly, we affirm the grant of summary judgment, albeit
on narrower grounds, on Validus’s refund claims.
 3

I.

Validus, a foreign corporation, both (1) sells reinsurance to
insurance companies, including insurance companies that are
incorporated in the United States or do business in the United
States, and (2) purchases reinsurance to protect itself against
losses suffered on the reinsurance policies it sells. The former,
or first-level reinsurance, is not at issue here. Rather, what is at
issue is second-level reinsurance (i.e., “retrocessions”) where the
purchase and sale of reinsurance occurs outside of the United
States between foreign reinsurance companies. Validus seeks
refunds only with respect to the excise taxes imposed on nine
reinsurance policies that it purchased from wholly foreign
insurance companies.

A.
According to the parties’ joint statement of undisputed
material facts, Validus is a corporation organized under the laws
of Bermuda with its principal place of business in Bermuda. It
is in the reinsurance business, providing insurance to insurance
companies. During the relevant period, Validus did not conduct
business in the United States. Although Validus does not itself
operate in the United States, it sells reinsurance to insurance
companies that sell policies covering risks, liabilities, and
hazards within the United States.

Validus also buys insurance covering portions of its own
reinsurance agreements. Transactions in which a reinsurer buys
reinsurance are known as “retrocessions,” and the party selling
retrocessions is a “retrocessionaire.” Section 4371, in
subchapter A of chapter 34 of the Internal Revenue Code, taxes
premiums on certain policies of insurance and reinsurance
issued by foreign insurers. Validus paid the 2006 excise tax
under section 4371 on premiums for nine retrocessions, all
purchased from foreign retrocessionaires. These policies were
 4

negotiated, executed, and performed outside the United States
and are herein referred to as wholly foreign retrocessions.

The Internal Revenue Service (“IRS”) determined that
Validus owed section 4371 excise taxes on the portions of its
2006 wholly foreign retrocessions relating to underlying U.S.
risks. Validus paid the assessed tax, with interest, and timely
filed claims for refunds under 26 U.S.C. § 6511, on the grounds
that the excise tax did not apply and, alternatively, that if it did,
then the tax was unconstitutional. When the IRS did not act on
the refund claims within six months, Validus filed suit in the
federal district court.

The district court granted summary judgment to Validus,
ruling that, under the plain text of section 4371(3), the excise tax
reached only reinsurance policies (level one), not retrocessions
(level two). Validus Reinsurance, Ltd. v. United States, 19 F.
Supp. 3d 225, 229 (D.D.C. 2014). The government contends
that the district court erred because it focused on section 4371,
the provision setting the tax rate, in isolation and as a result
“adopted an overly narrow interpretation” of the statutory term
“policy of reinsurance,” failing to give effect to other relevant
statutory text. Appellant’s Br. 27. Our review of the grant of
summary judgment is de novo. See McCormick v. District of
Columbia, 752 F.3d 980, 986 (D.C. Cir. 2014). Our
consideration of a pure legal question of statutory interpretation
is also de novo. See United States v. Wilson, 290 F.3d 347, 352
(D.C. Cir. 2002).

B.
Section 4371 of the Internal Revenue Code provides:

There is hereby imposed, on each policy of insurance,
indemnity bond, annuity contract, or policy of
reinsurance issued by any foreign insurer or reinsurer,
 5

a tax at the following rates:
(1) Casualty insurance and indemnity bonds. 4
cents on each dollar, or fractional part thereof, of the
premium paid on the policy of casualty insurance or
the indemnity bond, if issued to or for, or in the name
of, an insured as defined in section 4372(d);
(2) Life insurance, sickness, and accident policies,
and annuity contracts. 1 cent on each dollar, or
fractional part thereof, of the premium paid on the
policy of life, sickness, or accident insurance, or
annuity contract; and
(3) Reinsurance. 1 cent on each dollar, or fractional
part thereof, of the premium paid on the policy of
reinsurance covering any of the contracts taxable
under paragraph (1) or (2).

26 U.S.C. § 4371 (emphasis added). This is one of four sections
in subchapter A of chapter 34 on policies issued by foreign
insurers. As relevant, section 4372 provides definitions of
“insured” and “policy of reinsurance.” Id. §§ 4372(d), (f). Two
exemptions are provided in section 4373, one for certain
amounts “effectively connected with” trade or business within
the United States and another for certain indemnity bonds.
Section 4374 provides that liability for the excise tax is imposed
on both the purchaser and seller when not the United States or
its agencies or instrumentalities.

Section 4371 derives from an expansion of the excise tax on
foreign insurance enacted during World War II as part of the
Revenue Act of 1942 (“1942 Act”), Pub. L. No. 77–753, § 502,
56 Stat. 798, 955–56. The text of the 1942 statute made clear
that its purpose was not only to raise revenues during a time of
tremendous strain on the national fisc, see H.R. REP. NO.
77-2333, at 1–2 (1942), but also to help U.S. insurance
companies compete with foreign insurers. The stamp tax of 4
 6

cents for each dollar of premium was extended beyond marine
and fire insurance policies to all kinds of insurance policies
issued to domestic entities and individual residents by foreign
insurers. Compare 26 U.S.C. § 1804 (1940), with id.
§§ 1804(a)–(b) (Supp. II 1942). Congress also, for the first
time, subjected reinsurance policies to the tax. Compare id.
§ 1804 (1940), with id. § 1804(c) (Supp. II 1942). The 1942 Act
exempted from the tax policies “signed or countersigned by an
officer or agent of the reinsurer in a State, Territory, or District
of the United States within which such reinsurer is authorized to
do business.” Id. § 1804(c) (Supp. II 1942); see also id.
§§ 1804(a)–(b) (Supp. II 1942). In other words, the excise tax
did not apply when insurance premiums were subject to U.S.
income taxes, see Neptune Mut. Ass’n, Ltd. of Berm. v. United
States, 862 F.2d 1546, 1549 (Fed. Cir. 1988); 61 CONG. REC.
7180–81 (1921) (discussing the predecessor to § 1804), an
exemption carried forward in current section 4373(1). As the
1942 House Committee Report explains, the excise tax thereby
“eliminate[s] an unwarranted competitive advantage now
favoring foreign insurers.” H.R. REP. NO. 77-2333, at 61; see
also 61 CONG. REC. 7180–81.

II.

“The plainness or ambiguity of statutory language is
determined by reference to the language itself, the specific
context in which that language is used, and the broader context
of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S.
337, 341 (1997).

A.
At first glance, the plain text of section 4371 appears to
extend the reach of the IRS Commissioner to any casualty and
life insurance policy issued by a foreign insurer anywhere in the
world. Read in conjunction with the statutory definitions,
 7

however, section 4371’s reach is more modest. Applying the
definition of an “insured,” paragraph (1) of section 4371 taxes
premiums paid on casualty insurance and indemnity bonds
issued by foreign insurers to domestic entities or individual
residents “against, or with respect to, hazards, risks, losses, or
liabilities wholly or partly within the United States,” see 26
U.S.C. § 4372(d)(1); it also taxes premiums paid on such
policies issued to nonresident individuals and foreign entities
“engaged in a trade or business within the United States,” see id.
§ 4372(d)(2). Paragraph (2) taxes only those policies of life,
sickness, or accident insurance, or annuity contracts “made,
continued, or renewed with respect to the life or hazards to the
person of a citizen or resident of the United States.” See id.
§ 4372(e). Paragraphs (1) and (2) thus tax only policies issued
to persons with residence in, or commercial connections to, the
United States, with regard to U.S.-based risks and liabilities.

Paragraph (3) taxes premiums paid on reinsurance policies
“covering” such contracts. Id. § 4371(3). Section 4372 defines
a “policy of reinsurance” to include “any . . . instrument . . .
whereby a contract of reinsurance is made, continued, or
renewed against, or with respect to, any of the hazards, risks,
losses, or liabilities covered by contracts taxable under
paragraph (1) or (2) of section 4371.” Id. § 4372(f). This
statutory definition fits awkwardly into paragraph (3): section
4371(3) apparently taxes any “policy of reinsurance” issued with
respect to U.S.-based risks and liabilities covered by a contract
taxable under paragraph (1) or (2), covering a contract taxable
under paragraph (1) or (2). This apparent redundancy is the
focus of the parties’ dispute.

The parties offer two plausible interpretations of section
4371(3) based on the plain text; one would tax wholly foreign
retrocessions, and the other would not. “Cover,” the
government points out, may be defined as “to put, lay, or spread
 8

something over, on, or before (as for protecting . . .),” “to afford
protection or security to,” “to afford protection against or
compensation or indemnification for,” or to “defray the cost of.”
WEBSTER’S THIRD INTERNATIONAL DICTIONARY OF THE
ENGLISH LANGUAGE UNABRIDGED 524 (1993) (“WEBSTER’S”);
see Appellant’s Br. 27–28. The retrocessionaire “covers” the
risks insured under the original policy, the government
maintains, because the risk of loss is “passed up the insurance
chain” from the insured to the insurer, to the reinsurer, and
finally to the retrocessionaire. Appellant’s Br. 29. Thus,
“[r]etrocessions . . . lie over and protect against the risks covered
under the original insurance policy.” Id. at 28. Further, “the
retrocessionaire ‘affords protection or security to’ the original
ceding company and the original policy holder by effectively
increasing the reserves of the original insurer.” Id. at 30.

Validus responds that the only relevant definition of
“cover” in the insurance context is “to ‘afford protection against
or compensation or indemnification for.’” Appellee’s Br. 15–16
(quoting WEBSTER’S, supra, at 524). The plain text of section
4371(3) “imposes tax on reinsurance contracts that cover other
contracts, not specified risks.” Appellee’s Br. 11. “[U]nder
well-settled rules of privity in reinsurance law,” Validus
explains, the wholly foreign retrocessions “provide indemnity
only to Validus, for its liability under the first-level reinsurance
policies it issues to direct insurers.” Id. at 10. Section 4371(3)
therefore does not tax Validus’s wholly foreign retrocessions,
Validus concludes, because the retrocessions do not directly
indemnify Validus’s policyholders against, and therefore do not
cover, the contracts those policyholders sold to the original
insured parties — in other words, they do not cover the contracts
taxable under paragraphs (1) and (2).

Neither party demonstrates that the word “covering,”
standing alone, unambiguously should be interpreted according
 9

to that party’s preferred meaning. The government’s attempt to
define “cover” as “to lie over” cannot be supported in the
insurance context. The definition of “cover” as “to lie over”
refers to one physical object covering another, see WEBSTER’S,
supra, at 524; “cover” has a different meaning when used to
refer to an insurance policy, see id. An out-of-context definition
is no use to a party in support of its interpretation. See Sw.
Airlines Co. v. Transp. Sec. Admin., 554 F.3d 1065, 1069–70
(D.C. Cir. 2009); see also Brown v. Gardner, 513 U.S. 115,
117–18 (1994). On the other hand, Validus has not
demonstrated that “covering” could mean only “directly
indemnifying or compensating for.” The relevant definition of
“cover” includes “to afford protection against or compensation
or indemnification for.” WEBSTER’S, supra, at 524. A
retrocession indirectly “affords protection against or
compensation for” an original insurer’s contract with its
policyholder. See Transcon. Underwriters Agency, S. R. L. v.
Am. Agency Underwriters, 680 F.2d 298, 299 n.2 (3d Cir. 1982).
The reinsurer “assigns” to the retrocessionaire “all or a portion
of the risk which [the reinsurer] reinsures.” See id. Validus
points to authorities indicating that most retrocessions do not
directly indemnify the original insurer for any losses or give the
original insurer any claim against the retrocessionaire. See
Travelers Indem. Co. v. Scor Reinsurance Co., 62 F.3d 74, 76
(2d Cir. 1995); China Union Lines, Ltd. v. Am. Marine
Underwriters, Inc., 755 F.2d 26, 30 (2d Cir. 1985);
REINSURANCE 9, 20 (Robert W. Strain ed., rev. ed. 1997); H.
ERNEST FEER, APPROACH TO REINSURANCE 10–11 (1951);
Douglas R. Richmond, Reinsurance Intermediaries: Law and
Litigation, 29 U. HAW. L. REV. 59, 59 (2006). Even though
these sources show that some retrocessions do not directly cover
the contracts described in paragraphs (1) and (2), they do not
resolve whether Congress intended “covering” as used in
paragraph (3) to mean only “directly covering” or “directly and
indirectly covering.”
 10

Looking beyond the dictionary definition of “cover[ing],”
the statutory context does not resolve the interpretation of
section 4371(3). The statutory definition of “policy of
reinsurance” supports a broad application of the excise tax under
section 4371(3). The definition extends, not to policies
“covering” other insurance contracts, but to policies “made . . .
with respect to” U.S.-based “hazards, risks, losses, or liabilities”
covered by another insurance contract. 26 U.S.C. § 4372(f).
Even if a retrocession triggered, ultimately, by a U.S.-based loss
does not directly “cover” the original contract insuring that loss,
it has been made “with respect to” such a loss. See XIII THE
OXFORD ENGLISH DICTIONARY 732 (2d ed. 1989) (defining
“with respect” as “with reference or regard to something”
(emphasis omitted)); cf. Coregis Ins. Co. v. Am. Health Found.,
241 F.3d 123, 128–29 (2d Cir. 2001). Validus responds that the
“sweeping interpretation” urged by the government is
“foreclosed by the statute’s structure”: “The interplay of the
statute’s definition of ‘reinsurance’ and its tax-imposing
language shows that Congress defined reinsurance broadly to
encompass all policies that relate to underlying U.S. risks, but
taxed only those policies that ‘cover’ casualty and life insurance
policies.” Appellee’s Br. 11.

Indeed, to interpret paragraph (3) to impose the excise tax
on all policies of reinsurance issued with respect to risks covered
by a contract taxable under paragraph (1) or (2) would be to read
the “covering” clause out of the statute. As courts have long
acknowledged, “[i]t is our duty to give effect, if possible, to
every clause and word of a statute.” United States v. Menasche,
348 U.S. 528, 538–39 (1955) (citation and internal quotation
marks omitted). But “such maxims, while often providing
useful assistance in interpretation, do not always offer
conclusive resolution of statutory ambiguities.” United States
v. Stewart, 104 F.3d 1377, 1387 (D.C. Cir. 1997); see Marx v.
Gen. Revenue Corp., 133 S. Ct. 1166, 1177 (2013); Lamie v.
 11

U.S. Trustee, 540 U.S. 526, 536 (2004); United States v.
Hansen, 772 F.2d 940, 946–47 (D.C. Cir. 1985) (Scalia, J.).
This is such a case.

Exempting retrocessions is contrary to a stated
congressional purpose that is apparent from the statutory text
and context. By providing an exemption in section 4373(1),
Congress imposed the excise tax only on the business of
insurance companies not already subject to a U.S. income tax.
Section 4371, together with section 4373(1), thus operates to
level the playing field between domestic and foreign insurance
and reinsurance businesses. Validus’s interpretation would
create a distinction that limits Congress’s leveling purpose: The
excise tax would not apply where a U.S. reinsurance company
purchases a retrocession from a foreign insurer. Because a
retrocession is merely another kind of reinsurance, i.e.,
“reinsurance for reinsurers,” REINSURANCE, supra, at 19,
Validus’s interpretation of paragraph (3) would create a
distinction between retrocessions and reinsurance issued by
foreign entities to domestic insureds that would be at odds with
a clear purpose of the statute. See United States v. Ron Pair
Enters., 489 U.S. 235, 242–43 (1989); Am. Tobacco Co. v.
Patterson, 456 U.S. 63, 71 (1982). Just as courts are obligated
to avoid construing statutes to create superfluities when
possible, so too must they avoid statutory interpretations that
“bring about an anomalous result” when other interpretations are
available. Stewart, 104 F.3d at 1388 (citing United States v.
Bergh, 352 U.S. 40, 45 (1956)).

Because both parties offer plausible interpretations based on
different readings of the statutory text, we conclude the text of
section 4371 is ambiguous with regard to its application to
wholly foreign retrocessions. This statutory ambiguity is
resolved by the presumption against extraterritoriality.
 12

B.
“It is a longstanding principle of American law ‘that
legislation of Congress, unless a contrary intent appears, is meant
to apply only within the territorial jurisdiction of the United
States.’” EEOC v. Arabian Am. Oil Co. (“Aramco”), 499 U.S.
244, 248 (1991) (quoting Foley Bros., Inc. v. Filardo, 336 U.S.
281, 285 (1949)). The Supreme Court has instructed that a court
must presume that a statute has no extraterritorial application
“‘unless there is the affirmative intention of the Congress clearly
expressed’ to give a statute extraterritorial effect.” Morrison v.
Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010) (quoting
Aramco, 499 U.S. at 248). Neither party maintains that
retrocessions between wholly foreign parties are not
extraterritorial, and the extraterritoriality of the retrocessions at
issue is evident from the parties’ joint stipulation of material
facts. In looking, then, to the statutory text, context, purpose,
and legislative history for a “clear indication” of Congress’s
intent, Morrison, 561 U.S. at 265; see Kiobel v. Royal Dutch
Petroleum Co., 133 S. Ct. 1659, 1665–68 (2013); Foley Bros.,
336 U.S. at 285–88, the court necessarily avoids any case-by-
case attempt to “divin[e] what Congress would have wanted if it
had thought of the situation before the court” so as to “preserv[e]
a stable background against which Congress can legislate with
predictable effects,” Morrison, 561 U.S. at 261 (footnote
omitted). The government has identified no clear indication by
Congress that it intended the excise tax to apply to wholly
foreign retrocessions, and we have found none.

Validus has not challenged the application of the excise tax
to the sale of reinsurance to a U.S. insurance corporation or a
foreign insurance corporation doing business in the United
States. See Appellee’s Br. 5–6 (citing American Bankers Ins.
Co. of Fla. v. United States (“American Bankers II”), 388 F.2d
304, 305 (5th Cir. 1968)). The government interprets the plain
text to rebut the presumption against extraterritorial effect
 13

because it views the excise tax to have only extraterritorial effect,
applying solely to transactions not “effectively connected with
the conduct of a trade or business within the United States,” 26
U.S.C. § 4373(1), and involving a foreign insurance company.
But even if the excise tax applies to premiums paid by a U.S.
insured to a foreign insurer or reinsurer, that does not resolve the
issue presented by Validus’s refund claims.

The government does not confront the Supreme Court’s
direction that “when a statute provides for some extraterritorial
application, the presumption against extraterritoriality operates
to limit that provision to its terms,” Morrison, 561 U.S. at 265.
The wholly foreign retrocessions at issue are materially different
from the reinsurance contracts in which there is privity of
contract between the foreign reinsurer and a domestic (U.S.)
individual or entity, or entity doing business in the United States.
Applying the excise tax to retrocessions between wholly foreign
insurers would extend the extraterritorial reach of section 4371
by allowing the tax to compound into perpetuity with the
creation of every new reinsurance contract after the first-level
reinsurance contract, despite the absence of a contractual or other
legal relationship with any U.S. entity. “Under this ‘cascading
tax’ theory, there is no limit to the number of times the United
States can collect excise tax on retrocessions, provided they can
ultimately be traced back, through any number of intermediate
contracts, to U.S.-based risks.” Appellee’s Br. 7. Although
government counsel stated during oral argument that the tax is
unlikely to compound to exceed the amount a U.S. reinsurer
would have to pay in U.S. income taxes, the possibility of a
“cascading” tax so attenuated from any U.S. entity or entity
conducting business in the United States nevertheless
differentiates the tax the government proposes from that clearly
authorized under section 4371. “[C]ourts must find clear and
independent textual support — rather than relying on mere
inference — to justify the nature and extent of each statutory
 14

application abroad.” Keller Found./Case Found. v. Tracy, 696
F.3d 835, 845 (9th Cir. 2012) (citing Morrison, 561 U.S. at 265).

The government maintains that section 4371(3) should be
interpreted broadly in view of the imposition of the tax “on each
policy of insurance . . . or policy of reinsurance issued by any
foreign insurer,” 26 U.S.C. § 4371 (emphasis added). Yet
Congress’s use of the words “each” and “any” is not a clear
expression of its intent to assert extraterritorial jurisdiction. In
Kiobel, the Supreme Court rejected an extraterritorial application
of the Alien Tort Statute based on such language: “Nor does the
fact that the text reaches ‘any civil action’ suggest application to
torts committed abroad; it is well established that generic terms
like ‘any’ or ‘every’ do not rebut the presumption against
extraterritoriality.” 133 S. Ct. at 1665 (citations omitted); see
also United States v. Ali, 718 F.3d 929, 935 (D.C. Cir. 2013).
The text remains ambiguous; although the government’s
interpretation is plausible, plausibility does not rebut the
presumption against extraterritoriality. See Aramco, 499 U.S. at
250–51; see also Morrison, 561 U.S. at 264.

Nor is the court persuaded that the statutory text, viewed in
context, unambiguously directs the tax on foreign insurance
policies to follow the U.S.-based risk, as the government
contends. The definition of “policy of reinsurance” includes any
policy “made . . . with respect to” U.S.-based “hazards, risks,
losses, or liabilities.” 26 U.S.C. § 4372(f). In the 1942 Act, the
excise tax was imposed directly “[o]n each policy of
reinsurance” issued by a foreign party “with respect to[] any of
the hazards, risks, losses, or liabilities covered by contracts
described.” Id. § 1804(c) (Supp. II. 1942). When Congress
“rearrange[d]” and “simplif[ied]” the excise tax in 1954, S. REP.
NO. 83-1622, at 482 (1954) — expanding the definition section
and adding the exemption section and the paragraph (3)
“covering” clause, see Internal Revenue Code of 1954 (“1954
 15

Act”), Pub. L. No. 83–591, 68A Stat. 1, 521–24 — the
committee reports state that Congress did not intend any
substantive changes. See S. REP. NO. 83-1622, at 482; H.R. REP.
NO. 83-1337, at A325 (1954). Since the 1954 Act, the excise tax
provision has no longer taxed “each policy of reinsurance . . .
made . . . with respect to” certain risks, 26 U.S.C. § 1804(c)
(Supp. II. 1942), only “each . . . policy of reinsurance . . .
covering” certain contracts, id. § 4371(3) (2012). To the extent
the principle “follow the risk” underlay the 1942 Act, after the
1954 Act that is no longer certain.

Moreover, even if the 1942 Act had remained unchanged,
the text of the 1942 Act did not contain a clear indication that
Congress intended to tax wholly foreign retrocessions. In New
York State Conference of Blue Cross & Blue Shield Plans v.
Travelers Insurance Co., 514 U.S. 645, 655 (1995), the Supreme
Court refused “to extend” the term “relate to” “to the furthest
stretch of its indeterminacy” to overcome the presumption
against federal preemption of state law. Similarly, here, the
breadth of the phrase “with respect to” does no more to rebut the
presumption against extraterritoriality than do expansive words
like “each” and “any.”

Nor does the legislative history of the excise tax supply a
clear indication that Congress intended the broad interpretation
urged by the government. The current version of the tax evolved
from an excise tax on property insurance sold by foreign insurers
to U.S. residents or corporations. See 26 U.S.C. § 1804 (1940).
That tax excluded reinsurance and thus could not have applied to
any reinsurance transaction between two foreign insurers, much
less a retrocession. Reinsurance was added when Congress
amended the excise tax in the 1942 Act. See 56 Stat. at 955–56.
The legislative history is limited. The House Committee Report
states: “It is believed that the revised provision will yield an
appreciable amount of revenue, and at the same time eliminate
 16

an unwarranted competitive advantage now favoring foreign
insurers.” H.R. REP. NO. 77-2333, at 61. In Senate Committee
hearings, a representative of the House of Representatives Office
of Legislative Counsel testified that “[t]he attempt here is to
equalize the situation between domestic corporations engaged in
casualty and other kinds of insurance and foreign corporations
where the insurance is taken out in the United States but the
policy is countersigned abroad.” Hearings on H.R. 7378 Before
the S. Comm. on Finance (“Hearings on H.R. 7378”), 77th Cong.
121 (1942) (statement of John O’Brien).

This history does not evince an unambiguous congressional
intent to apply the excise tax to wholly foreign retrocessions, and
some of it points the other way. Because the Internal Revenue
Code of 1939 did not apply the excise tax to reinsurance, it is
unlikely that Congress intended, without comment, to adopt the
expansive interpretation of the 1942 tax that the government
maintains was carried forward in the 1954 reorganization. This
court has been skeptical of finding major changes in legislation
that have passed unremarked upon in the legislative history. See,
e.g., Lamont v. Haig, 590 F.2d 1124, 1129–30 & n.34 (D.C. Cir.
1978); Laborers’ Int’l Union Local Union No. 1057 v. NLRB,
567 F.2d 1006, 1012–13 & n.41 (D.C. Cir. 1977). The only
relevant indication of Congress’s intent in the legislative history
of the 1942 Act is the testimony from the House Office of
Legislative Counsel that the excise tax was intended to reach
“insurance . . . taken out in the United States,” Hearings on H.R.
7378, supra, at 121 (statement of John O’Brien) (emphasis
added).

Even assuming that applying the excise tax as broadly as
possible would serve Congress’s purposes to “yield an
appreciable amount of revenue, and at the same time eliminate
an unwarranted competitive advantage now favoring foreign
insurers,” H.R. REP. NO. 77-2333, at 61, those purposes are
 17

served by taxing first-level reinsurance, as well as retrocessions
purchased by U.S. parties. To conclude that Congress also
intended a more expansive application of the tax to wholly
foreign retrocessions would require more than general and
generic statements of purpose, which enable the court to do only
what the Supreme Court has instructed against: attempt to
“divin[e] what Congress would have wanted if it had thought of
the situation before the court,” Morrison, 561 U.S. at 261.
“‘[N]o legislation pursues its purposes at all costs,’” and “[t]he
task of statutory interpretation cannot be reduced to a mechanical
choice in which the interpretation that would advance the
statute’s general purposes to a greater extent must always
prevail.” United States ex rel. Totten v. Bombardier Corp., 380
F.3d 488, 495 (D.C. Cir. 2004) (quoting Student Loan Mktg.
Ass’n v. Riley, 104 F.3d 397, 408 (D.C. Cir. 1997)); see also
Lamont, 590 F.2d at 1130. The presumption against
extraterritoriality gives this principle particular force.

For the first time, the government on appeal seeks the
benefit of judicial deference under Chevron U.S.A. Inc. v.
Natural Resources Defense Fund, 467 U.S. 837 (1984), to the
U.S. Treasury Department’s interpretation of the excise tax.
Even assuming this argument is properly before the court, but
see Prime Time Int’l Co. v. Vilsack, 599 F.3d 678, 686 (D.C. Cir.
2010), and that after Morrison the presumption against
extraterritoriality leaves room for such deference, but see Liu
Meng-Lin v. Siemens AG, 763 F.3d 175, 182 (2d Cir. 2014), the
argument is unavailing. To accord deference requires some
indication that the agency has considered the effect of the
presumption against extraterritoriality, see Morrison, 561 U.S.
at 272–73; Keller Found./Case Found., 696 F.3d at 846, and the
government references none with respect to the administrative
rulings on which it relies.

The government also urges the court to construe section
 18

4371 to align with the holdings in United States v.
Northumberland Insurance Co., 521 F. Supp. 70 (D.N.J. 1981),
and American Bankers Insurance Co. of Florida v. United States
(“American Bankers I”), 265 F. Supp. 67 (S.D. Fla. 1967), aff’d
sub nom. American Bankers II, 388 F.2d 304. But these cases
are either factually distinguishable or lack persuasive force with
respect to the presumption against extraterritoriality. In
Northumberland, the district court upheld the excise tax as
applied to premiums paid on reinsurance and retrocessions issued
to an Australian insurance company by a Swiss company. 521
F. Supp. at 73–75. Not only was the court presented with
different textual arguments than those made here, see id. at 76,
the court did not address the presumption against
extraterritoriality and gave “considerable” deference to the same
Treasury rulings on which the government now relies, id. at 77
— deference that is inappropriate absent consideration of the
presumption. American Bankers I and II similarly do little to
advance the government’s interpretation. Those cases addressed
whether section 4371(3) applied to policies of reinsurance
purchased by domestic insurers from foreign reinsurers —
policies of a type not at issue in the instant case. American
Bankers I, 265 F. Supp. at 72. In fact, the Fifth Circuit rejected
the interpretation that the tax applied only to policies purchased
by foreign insurers from foreign reinsurers because that
interpretation would have caused section 4371(3) to have only
extraterritorial effect. Referencing “problems of the reach of
congressional taxing power” and “extraordinary problems of tax
administration,” that court “decline[d] to follow literalism so
literally to ascribe such an intent to Congress.” American
Bankers II, 388 F.2d at 305. This holding is in obvious tension
with the government’s interpretation of section 4371 here.

Upon considering the sources of statutory meaning, we
conclude that under “the most faithful reading of the text,”
Morrison, 561 U.S. at 265 (citation and internal quotation marks
 19

omitted), section 4371 does not apply to Validus’s wholly
foreign retrocessions. Section 4371 is ambiguous with respect
to its application to wholly foreign retrocessions. Neither the
text, context, purpose, nor legislative history provide a clear
indication of congressional intent to rebut the presumption
against such expansive extraterritorial application. Accordingly,
we affirm the grant of summary judgment, albeit on narrower
grounds, to Validus on its refund claims.